A bond fund managed by two top names at DoubleLine Capital beat the broader market by playing defensive without fully committing to the coming recession. The DoubleLine Opportunistic Bond ETF (DBND) has a total return of 3.2% over the past year. That’s more than the broadest bond funds like the iShares Core U.S. Aggregate Bond ETF (AGG) and ETF category indexes identified by FactSet and Morningstar. The fund’s 30-day SEC yield is about 5%. DoubleLine’s Deputy Chief Investment Officer Jeffrey Sherman serves as the fund’s portfolio managers, along with Chief Executive Officer and Chief Information Officer Jeffrey Gundlach. Sherman told CNBC that the two-line team sees signs of a potential economic slowdown, but does not believe the Fed will cut interest rates significantly. “You shouldn’t be betting on a big expansion at this time. That means you probably shouldn’t delve into the riskiest parts of the market. You should probably expect rates to stay at these levels for some time, which means high quality is very It makes sense,” Sherman said. Sherman said the fund holds positions in U.S. Treasuries and agency mortgages, which would do well if the economy weakens, but that most of its exposure is in corporate credit and tilts toward higher-rated issuers. The fund’s website says 41% of the portfolio is investment grade credit and less than 12% is below investment grade bonds. “Given the current level of yields, you can get relatively high returns just by getting higher credit quality,” Sherman said. Bonds with higher perceived risk tend to have higher yields to attract investment By. However, Sherman said the spread between safer debt and riskier debt is currently very small. As a result, this is the lowest amount of below-investment-grade exposure DNBD has had since its inception in 2022, Sherman said, while similar strategies in DoubleLine’s other products are also at their lowest exposure in 14 years. “We didn’t find enough pick-ups that led to a real decline in quality,” Sherman said. The ETF has a duration of six years and the bonds have a weighted average life of more than seven years. Sherman said the fund will generally stick to this time exposure but make active selections for different types of debt. “It should behave like any other intermediate fund. It should be as zigzag as that part of the market. So it’s not one of those undisciplined funds or anything like that. When there’s something that’s obviously cheap, we’ll try to overweight and get exposure It,” Sherman said. The DBND fund has an expense ratio of 0.50% and has approximately $270 million in assets. The fund is part of a growing trend among asset managers to put some active investing strategies into ETFs, with bond funds and other income products being the most popular.
